Permits, Standards, and Technology Innovation

I compare environmental R&D incentives offered by four policy instruments—emission standards, performance standards, tradeable permits, and auctioned permits—in the presence of oligopoly permits and output markets. Because R&D incentives depend on direct and strategic effects, standards can offer greater incentives than do permits. If markets are perfectly competitive, however, tradeable and auctioned permits provide equal incentives that are similar to those offered by emission standards and greater than those offered by performance standards.